Volatility Remains, Oil Fresh Year Highs

U.S. Dollar Trading (USD) Risk appetite improved Monday with stocks rebounding from Friday lows but the gains have not been one way with large reversals intraday continuing make trading difficult. Oil is pressing higher to fresh 2016 levels above $48 and is threatening to test the psychological $50 in coming days. Today's US CPI numbers may take on increased significance in the FED hike or not debate with some commentators suggesting June is the last chance before the US elections to raise rates and not affect the politics.

The Euro (EUR) The EUR/USD continues to find timid support on this move lower and with the larger uptrend from 1.050 in view the longer we find support above 1.12 the more likely that we return action to the topside. EUR/JPY continues to find solid support at Y123 and is forming a base. European economic data is light this week with most of the movement likely to come from Oil/US data. The Sterling (GBP) Broke higher in the quiet of the pre asian open today and has pushed on to test 1.45 in the European Session. The rally was halted by subdued inflation data which remained low at 0.3% y/y in April. The Brexit vote is continuing to dominate headlines but with the remain camp looking solid the impact on the GBP so far has been limited. EUR/GBP selling has been a source of continued Pound support in recent weeks.

The Japanese Yen (JPY) Moved back above Y109 during Mondays trade and has pushed through to fresh multiweek highs above 109.60 in the European session so far. Y110 is obvious big figure resistance but shorts must be feeling a little concerned with not only the major but all the Yen crosses starting to form uptrends. Whilst not much has changed from the BOJ or FED in recent sessions to justify the reversal, the price action can not be ignored. The Australian Dollar (AUD) was under continued pressure at the start of the week and failed to capitalize on the recent Oil rally but was able to pop higher briefly in the Asian session Tuesday. The reason for the timid rally was the RBA minutes from the recent meeting in May where the central bank cut rates. The minutes showed a split decision about the timing of the cut with some members of the central bank wanting to wait for more information. This suggest a further cut may be harder achieve in coming months at least until we get the Q2 CPI data in July.

Stocks Indices(DAX) Found support under 9800 for a third time in recent weeks and we find ourselves once again at 10000 in early Tuesday trade. The reversals intraday have made this pair very hard to chase and with little major economic news this week a sustained break higher may be hard to achieve. US Stocks (DOW) Has continued to outperform the weakness of the Asian and European bourses in recent and has bounced nicely off the 17500 level yesterday. Buying dips continues to be my default plan whilst Oil continues to outperform and probably the reason global stocks have not suffered more in recent weeks.

Pairs to watch

USD/JPY Test Y110 today?

German DAX30 Can we close above 10000?

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Economic Data Ahead

US April CPI forecast at 0.3% vs. 0.1% previously m/m.

NZD Dairy Auction GDT Price Index (results usually at US open)

By Anthony Darvall (TonyD)